Helping Low-Income Workers Weather the Recession

Transcript

MR. MICHAEL ARMACOST: It's my pleasure, as the president of Brookings, to welcome all of you this morning for this program on how the current recession affects low income workers. Because of our Welfare Reform and Beyond project, as well as the natural concern we all have for the individuals affected, this issue is of special interest to Brookings. There are now at least a million and a half low income mothers who used to be on welfare, who have jobs.

Now, the issue we plan to discuss today is whether Congress needs to take action to strengthen the Unemployment Compensation or the Temporary Assistance for Needy Families programs to help these mothers and other low income workers who might lose their jobs during the current economic downturn. I especially welcome the representatives from the Committee on Ways and Means in the House of Representatives, Congressman Ben Cardin from Maryland, who is here, Congressman Jim McCrery from Louisiana, who will arrive momentarily. It's great to have you at Brookings, and we appreciate your participation.

This event is being webcast live on the internet. The video and the audio will be archived on our Brookings website, so if people want to go back and have access to that and review the proceedings, you're welcome to do so. And for those viewing on the internet, if you would like to ask questions of any of our guests, please submit them via email to question@Brookings.edu. We are devoting a tremendous amount of attention, and time, and resources over the past year or more to this subject, under the leadership of Belle Sawhill, Ron Haskins, and Kent Weaver.

And we have really developed, I think, a variety of activities designed to raise awareness and deepen knowledge about the issues, which will be under review when the Welfare Reform Bill comes up for reauthorization later next year. This is one of those activities. Ron Haskins, who was scheduled to moderate the program this morning, unfortunately had to attend a funeral in Ohio today, so he's not able to be with us. But we have such a diverse and great strength in this program, it's no problem for us. We naturally turn to Belle Sawhill, another director of this program, and I'll leave the direction of the program in her capable hands.

MS. ISABEL SAWHILL: Thank you, Mike, and let me add my welcome to his. It's great to see so many people turnout for this forum, and I think it's a testament to the interest in the topic. I want to just try to provide a very brief overview of how we're going to proceed today and the issues we're going to cover, and I think there are basically four questions. The first question is, how serious is this recession anyway? And we have asked Bob Litan, the head of the economic studies program and a vice president here at Brookings to address that question. And I hope, Bob, you won't be shy about giving us a very definitive answer.

A second question is, what is the effect of the recession on low wage workers and the safety net? What's happening to unemployment insurance and welfare caseloads? One concern, of course, as Mike mentioned, is that many welfare mothers who have found jobs in the last year or two haven't worked long enough or earned high enough wages to qualify for unemployment insurance. And it's possible that they may have also exhausted their five year limit on welfare, and that with states under enormous fiscal pressure, there will be little help for them of the sort that they have enjoyed over this period of prosperity in the past, when state coffers were full.

Harry Holzer is going to say more about all of this. His estimates are, I think, that 30 to 40 percent of ex-welfare recipients are likely to qualify for unemployment insurance. And the good news here is if they do qualify, their benefits will be higher than they would be if they had to go back on welfare.

A third question is, how well positioned are states to respond to this increased demand for assistance? We know that most states or many states are in fiscal hot water right now, with rapidly declining revenues and many of them facing deficits. Some have relatively healthy unemployment insurance trust funds or welfare rainy day funds out of which they can pay rising unemployment insurance or welfare costs, but other states do not. Harry Holzer, who is a professor of public policy at Georgetown University, is going to provide us a primer in a few minutes on the two safety net programs, unemployment insurance and TANF, or welfare.

A fourth question is, what changes, if any, need to be made in these two systems, either in the unemployment insurance system or in the welfare system, to better meet the needs of those who have been on welfare or are disadvantaged, and for whom these systems may not be adequate? Proposals in the unemployment area range from extending benefits just to those who were laid off or lost their jobs as a result of the September 11th attack, to doing a much more ambitious set of things that might include not only extending the duration of benefits for all the unemployed, not just those who were laid off after September 11th, but also covering some new groups such as part time workers, and making the amount of money that they receive, which is now about $230 a week on average in this country, somewhat more generous.

Proposals in the welfare area range from reinstating the contingency fund that Congress initially setup for the purpose of helping states continue to pay welfare benefits during a recession. But that contingency fund expired in October, so one proposal would be simply to reinstate that. But there are also proposals to either end or defer temporarily the five-year time limit, and a number of others that Harry may want to discuss.

We will then turn to a possible discussion of these responses, first, with two members of Congress, Representative Ben Cardin from Maryland and Representative Jim McCrery from Louisiana, who has just joined us. Welcome, Congressman McCrery. We will then have a panel of leaders from different sectors that I'll introduce at a later time. I'm not going to take the time to make any formal introductions. The bios of all of the people who will be presenting are available to you. And so, without further ado, let me turn this over to Bob Litan.

MR. ROBERT LITAN: Thank you, Belle. I'm going to make this quick—Belle told me to. She told me to tell you in five minutes what's going to happen to the economy. There's a lot of mixed signals out there, and I can easily devote all of my five minutes to bad news, okay, because a lot of columnists are writing bad news. I'm going to make the case for cautious optimism, and I'll give you several reasons why.

Number one, oil and energy prices have fallen roughly ten dollars a barrel. For every dollar, it's $6 billion of purchasing power, just on oil alone. And energy as a whole, we're talking potentially a hundred billion dollar stimulus from lower energy prices. That's larger than anything Congress will do in the short run.

Second, there has been some uptick in consumer confidence, depending on which index you look at. Third, we had four straight weeks of declining unemployment claims, though the last week was a bad week, I admit. Fifth, we have had massive inventory liquidation, which appears to be coming to a close. The next point is, we've had lots of monetary and fiscal stimulus, a dramatic lowering of interest rates. We already had the Bush tax cut last time; we're about to get another stimulus package.

And despite all the partisan wrangling, I believe that Congress will produce a bill before you go home for Christmas, because I don't think you can afford to go home without a bill. However, I don't think that bill will provide much in the way of immediate stimulus. There are a lot of elements in the bill, due to a compromise, that will probably not have an immediate impact, coupled with the fact that, as Belle said, state constitutional amendments forcing balanced budgets are forcing a contractionary effect in our economy. And so, whatever stimulus we get at the federal level, in my view, is going to be offset at the state and local level.

Nonetheless, the stock market believes that we're having a recovery, and secondly, the bond market believes it. There is a dramatically upward slope to the yield curve, short term rates are far lower than long term rates, and that's because investors anticipate, over the long run, that the economy will pick up. So there's a lot of widespread belief that the economy will recover. First major point.

Second major point: don't rush out and uncork the champagne yet too soon. There's been an enormous amount of investment and capacity buildup in our economy, and therefore, if one had to pick a letter for the recovery, it's not a V. We're not likely to get a V, all right. We don't have a letter for what this is. It's going to be, in my view, a gradual recovery, starting sometime next year, I think perhaps as early as the first quarter, but it will be like an upward sloping L, if you will, with the L slightly going up.

Now, this is the third point, and this is why it's relevant to your conference. Just for unemployment to remain constant, the unemployment rate to remain constant, the economy has to grow at roughly three percent a year, because the labor force grows at one percent and productivity grows at two percent. So we can have recovery in the first part of the year at maybe one and a half or two percent, let's say, which I think is reasonable, and yet, we will still get rising unemployment.

And I'd like to turn on this chart, just to conclude this, to show you, compare this recession to the last three recessions. That shows you the initial unemployment rate, from the national point of view, for African-Americans and for Hispanics at the beginning of each of the last recessions and the current recession, and what the change was during the course of the recession.

This recession, the change, if all goes according to Hoyle [ph], I suspect we'll end up seeing a 6.5 percent, or so, unemployment rate, all right, which means that the change will be roughly 2.2, which will put it somewhere in the ballpark of the '90-'91 recession, far better than the last two recessions. That's the good news. There's also some good news in the sense that the changed unemployment for both African-Americans and Hispanic-Americans has been far lower than in past recessions.

The little bit of bad news, though, is that the—for African-Americans of 1.1, in the current recession, is due to the fact that we're measuring this for March, which is when the NBER dated the recession. If you go back to February, that change for African-Americans is actually 2.2. So we could get a further rise in unemployment for African-Americans that does not look like the previous recessions.

So all of this—and this is my final point—all of this is conditional on there being no further major terrorist attack on the United States that could shatter the confidence of the American consumer. But assuming—and we keep our fingers crossed that nothing like that, God forbid, will happen—I think there is a reasonable, plausible case that we'll have a slow recovery, beginning next year, that will gather strength during the course of next year and beyond.

That doesn't mean, though, that there won't be a lot of people at the bottom of the income distribution that won't be hit hard. In fact, there will be. That's the focus of your conference, and therefore, focus on that unemployment line, because that will determine, in many respects, the number of people that will potentially have to go back and find something other than welfare. And that's why we're all here.

I hope that satisfies your taste or quest for an economic prediction, and don't call me in three months if I'm wrong. Thanks.

MS. SAWHILL: I think that really sets up the problem beautifully. Harry will now tell us about what policies we have in place to deal with the pr

MR. HARRY HOLZER: Thank you, Belle. There's a lot of ground to cover, so I'm going to launch right into—Belle asked me to cover both the Unemployment Insurance Program and the TANF program in ten minutes, and they're both fairly complicated programs, so let me begin right away.

The Unemployment Insurance Program is a mix of a federal and a state program. The federal piece of it is actually fairly small. Employers pay eight tenths of one percent on the first seven thousand bucks per worker. That comes out to about $56 per worker. It goes into three federal trust funds. What does that money do? It's returned to the states to pay for administrative costs. The rest is kept for a recession, either for loans to the state, if they need loans, or to help finance extensions of the regular benefits program, not the regular program itself, but only the extensions of that program—and I'll come back to that issue.

The regular benefits program is financed exclusively at the state level. The states have a very wide latitude as to what kinds of tax bases they can use, what tax rates, and about the structure of their benefit programs, and so the numbers are really all over the map at the state level. The average firm in the average state pays about a two percent per worker tax rate, on a base of about $10,000. That's a couple hundred bucks a year that the average employer is paying for the average worker.

That's misleading, because there is a very wide range, even within any state. Some employers have to pay a lot more if they have a high layoff history; that's called experience rating. And some states have much higher tax bases and tax rates, but the average is about a couple hundred bucks per worker. The money also goes into a state trust fund; the money piles up during good times, and then it gets drawn down during bad times.

Now, what about the benefit issues? And there's only three issues we can talk about on the benefit side. One is recipiency and eligibility—exactly how many of these workers are going to be eligible for benefits. The second issue is, what's the level of benefits; is the level high enough, or do we think it's high enough? But thirdly, what's the duration of the benefits for which unemployed workers are eligible? Let me talk for about a minute on each of those topics.

On recipiency and eligibility, in boom times, only about 30 percent of all unemployed workers receive unemployment insurance. And that number has dropped very consistently and very steadily over several decades—30 percent of all unemployed workers. Now, during a recession, that number's probably going to rise, probably to the ballpark of about 40 percent of unemployed workers. Why do so many other workers not get unemployment insurance? Well, there's a bunch of eligibility conditions that need to be satisfied.

First of all, there's a minimal amount of earnings that people need to earn to qualify. And quite frankly, the earnings levels are not that high, and the vast majority of workers qualify for those. There is usually a high quarter requirement and then an additional requirement over four quarters. The high quarter requirement is usually in the ballpark of about $1,000 of earnings. And the total fourth quarter requirement, on average, is about $2,000.

If you look at the high-end states—I'll take the state of Michigan—it's $2,000 in the high quarter and $3,000 over the fourth quarters. Even low wage workers can usually meet those eligibility requirements with ten to fifteen weeks of fulltime work. So there is an earnings limit, but it's not that severe. But another issue is the reason for becoming unemployed. Remember, the only workers who receive unemployment insurance are those who were laid off due to no fault of their own. So if you quit, you're not covered; if you were discharged for cause, you were not covered; if you're a new labor force entrant or re-entrant, you are not covered by unemployment insurance. And finally, you have to be available for work, actively searching for work, and it has to be fulltime work. And that last point is important as well.

So these are all the different reasons. Since we're interested in the low end labor market, I think the important point is, for every one of those reasons, it's going to be somewhat harder for low wage earners to qualify for unemployment insurance than for everyone else, and you can talk about each of those reasons. For instance, the earnings requirements, even though they're not that high, they will be higher than what some workers can earn, and especially because there's a base period issue, one of these administrative quirks of how this program works.

States look at four quarters, but of course, you can't count the current quarter or the previous quarter to count those earnings requirements. So up to six months of earnings may not be counted, and that might trip up at least some low wage workers who entered the market very recently. Low wage workers have more quits, more discharges, often for family reasons, childcare reasons; they are much more likely to work part time. This doesn't even include the fraction of folks who have left welfare and are working off the books, that have no chance of qualifying for unemployment insurance under any scheme.

So these are all of the reasons. As Belle said, my guess—and I think the guess of other folks who look at these numbers—somewhere in the ballpark of 30 to 40 percent of previous welfare recipients will qualify for UI, the rest will not.

Now, benefit levels, that's been fairly constant over time. And the rule in most states has been about 50 percent of regular earnings, up to a certain limit; and then, beyond that limit, most workers don't get anything.

But since most low wage workers aren't going to hit that limit, they are going to be getting this 50 percent number pretty consistently. And then, the question is, well, how has that fared over time? Well, the 50 percent's been constant over time. The question is, what's happened to their wages over time? The real wages of low wage workers have been declining for most of the past 30 years—stagnant or declining. There's some controversy about exactly how we measure these wages, because there's a controversy about what's the right measure of inflation.

But there's no question about it that these low wage workers have been falling behind everyone else in the labor market. So certainly, in relative terms, the wage base has been declining. So it's 50 percent of either a stagnant or a declining wage base—for most of these workers, it's going to be somewhere in the ballpark of $100 a week, for as long as they're eligible. Which then raises the question of, well, for how long will they be eligible? And the standard program in almost every state is 26 weeks, or six months of regular eligibility.

There's two ways that could be extended. There is an automatic extended benefits program that gets triggered when a state's unemployment rate hits a certain level. But that program was triggered in very few states in the '90-'91 recession, and it may not be triggered in many states this time around. The triggers are set relatively high. For instance, the insured unemployment rate has to be five percent. That's one of the measures. There are some other triggers that the states may or may not choose to implement. But most states will not trigger, and certainly no states have triggered so far.

The alternative is an emergency program that Congress can pass, funded exclusively by federal money, which, of course, is what the states would prefer. Because in the extended benefits program that gets automatically triggered, the states pay for half, the federal government pays for half. If Congress votes an emergency bill, the federal government picks up the whole tab, and the states would prefer that.

Keep in mind that on this whole issue of duration, since the downturn began almost a year ago, even if it's a fairly mild recession, a lot of workers are already exhausting their six month benefit—workers laid off last spring in manufacturing. So this issue has immediate relevancy.

Now, the argument against why we should extend benefits and things like that, sometimes people make arguments about the incentive effects of unemployment insurance. If we extend unemployment insurance, workers have less incentive to look for jobs, the unemployment rate will go up. And the administration has made this argument. I think that argument is valid for boom times, but much less valid during a recession. Because very simply, if very few jobs are available, then less search effort and looking for those jobs just won't have as much effect on the unemployment rate.

The other issue is, what is the financial burden on states or on employers of extending these benefits? And that's a long discussion. I think the trust funds of most states are in moderately good shape, not necessarily great shape, but moderately good. They can probably take care of a mild recession. But remember, many states made the policy decision to cut their UI taxes during the 1990s. And that was a policy decision most implemented and may come back to haunt some of them if this recession turns out to be severe or to last a long time.

Now, the states can borrow from the federal government. That's one of the reasons we have these federal funds. The states don't like to do that because they have to pay interest on any borrowed funds, but some of them may have to do that if their trust funds run out of money.

On TANF—I've spent almost all my time on UI. On TANF, Belle raised most of the issues. We're in a block grant world right now, so states are responsible for paying the full load of any increases in the caseload. Workers face time limits. Quite frankly, the states have a lot of options for getting around the time limits if they want to. The question is, will they want to in the context of a serious recession where the states are already heavily pinched financially?

As many of you know, the block grant was a wonderful thing for states during the boom years, because the caseload was dropping very dramatically, the states kept getting the same amount of money. You've all heard about these TANF surpluses that were piling up in 1998, 1999, and 2000, but most of that money is gone. The states felt pressure to either use that money or lose it, so they obligated it and spent it on many, many other things—childcare, transportation, sometimes building bridges or roads.

The whole point is, that money is gone and it's allocated in other ways. Now that states need that money for caseloads, they will have some difficulty pulling it back and spending it on a group of workers who are somewhat less popular than other groups. As Belle said, the contingency fund is already expired. There is a small loan fund that is unattractive to states for lots of reasons. So those are a lot of the basic facts, and I'll stop now and we'll hear from the other speakers.

Thank you.

MS. SAWHILL: That was the best primer I've ever heard on those two programs done in short order. We're just going to take a minute now to bring the members of Congress up to the front here, and then we're going to have a discussion with them. Well, we're very fortunate to have these two distinguished members of Congress with us today. They both serve on the Ways and Means Committee. They've both been very active in welfare reform and I think the unemployment insurance issue as well.

And Representative Jim McCrery is from Louisiana; Representative Ben Cardin is from Maryland. And we are just going to have a discussion with them, and you can ask them questions, but we are very delighted to have both of you here. And let me ask you if you would like to take just a few minutes at the beginning, maybe starting with you, Representative McCrery, to say whatever you'd like about the issues we're here to discuss.

REP. JIM McCRERY (R-LA): Thank you very much for inviting me to participate in this conference. I commend you for highlighting this early the issue of welfare reform, because Ben and I and the Ways and Means Committee, and I guess the Senate will participate, have a big job to do next year, because the welfare reform law that we passed in '96 comes up for reauthorization. So we will be thinking about changes that need to be made in the system, and it's conferences like this that will give us the food for thought as we go through the process.

Let me just comment real quickly on one of the things the last speaker said, which is, you might have been left with the impression, based on his remarks, that the states are out of money—the welfare block grant. He was talking about the surpluses, and he said the surpluses are now gone. The states are continuing to get an annual block grant from the federal government.

I suppose there are those who might say, well, because we're in a recession now, that block grant might not be enough. That remains to be seen. But with the caseloads having been reduced so dramatically since the '96 bill was passed, I doubt that the block grant amount is going to be insufficient to meet the demands of the TANF payments. I don't think that's going to be a problem. Now, we're going to examine that as we go through, but there are still a number of states that have sizable surpluses, mine being one of them.

So I think the question of the amount of the block grant, whether it should be increased, whether it should stay the same, or whether it should be reduced is something we're going to have to look at very carefully. I believe that we ought not, just in a knee jerk fashion, assume that the states are getting too little money because of the past five years or because we're in a recession. I think we ought to examine that very closely.

We were asked this morning to talk about the adequacy of TANF and unemployment insurance. And you know, I think most people, when they read that title, would probably say, well, that means, is the combination of welfare funding or welfare payments and UI payments sufficient for some given individual? I think the question is bigger than that. The question, I think, should be looked at not only in the light of the sufficiency of payments to an individual, but in the light of whether the systems, TANF and unemployment insurance, do what society wants them to do.

And I believe—and this is the basis of welfare reform—that society wants people to work. If they are able and if they have the need in their family situation to work, then we want them to work. So part of that question should be, do TANF and the UI system encourage work? And are they organized in a way and funded sufficiently to provide that incentive and the tools for people to go back to work if they lose their job?

I think we created a system, with the Welfare Reform Act of '96 and our unemployment insurance system, that is doing a much better job at that than we were doing with AFDC. Are there problems? Absolutely. I think there are more problems in the UI system, frankly, than in the TANF system. A lot of the problems that I've been working on in the House is the funding to states, administrative funding for states to administer their UI programs, even though, again, the previous speaker said we've got all this money coming into the federal government, and it goes out to the states for administering the programs.

That's not exactly correct. Most of the money is kept here in Washington, and we've been using it to disguise the federal deficit for quite some time. We've not been giving back to the states, in my opinion, funding that is nearly adequate to administer the program in a proper way, and certainly not in a way that encourages work and helps states help the unemployed find work. So we policymakers in Washington, in my opinion, ought to be looking in the mirror and saying, shame on you for not giving the states the tools that the system is designed to give to the states to get people back to work.

And that should be the primary focus of an unemployment insurance system. Yes, we want to provide benefits in the transition from one job to another to tide people over while they're looking for work. But our main focus ought to be getting them a job, and the states have been shortchanged in terms of the funding for that job. That is the fault of federal policymakers, for not recognizing that shortchange and not funding it adequately.

In the bill that I introduced, I would make the funding mandatory, in other words, automatic. It would setup a formula so that that money, when it comes in, is given back to the states for administration on a mandatory basis. Right now, it's not on a mandatory basis. That funding goes out on an appropriated basis, so we decide every year how much to give to the states. I don't think that's the best way to do it, because when we get squeezed in a budget cycle, we're going to look to various places to find money to fit into the budget. And one place that's easy to do that is the unemployment insurance system and administrative funding to the states.

So I'd like to take it out of the hands of the appropriators and put it in the hands of the states, on a mandatory basis. With that, let me stop and give my good friend, Mr. Cardin, a chance to talk about what he's thinking about welfare reform.

REP. BEN CARDIN (D-MD): Well, thanks, Jim. First, though I listened to Bob's projections about the economy, the one projection I liked, though, he implied that Congress was going to be out by Christmas. (Laughter.) I hope he's right. It's good to be here with Jim McCrery. The two of us work very closely together on the Ways and Means Committee. You may not know this from our presentations: Jim's a Republican, I'm a Democrat. (Laughter.)

We do try to bridge that gap, because we both understand that if we're going to get things accomplished, we really need to work together. We may have different thoughts as to what's the best way to proceed, but I can tell you, on the Ways and Means Committee, we're going to try to work together to come out with some coherent policy.

Let me first express, I guess, some frustration. Many of us—and Jim's been in the leadership of talking about correcting the UI system—that we have problems in the UI system, and that we need to reform the UI system. And many of us said, you know, it would be nice to do it while the sun was shining, when you're not in a recession, to make those changes, because you can get people to really think about the long term policy changes when the sun is shining.

Well, as you know, we no longer have that sunny weather. We have a leaky roof, and we are projecting for more rain. And it's going to be difficult for us, I think, to deal with some of these issues on a long-term basis because of that issue. The second point, and here there is a partisan difference, and that is, I was deeply disappointed by the budget we passed earlier this year. Many of us thought that it was not the prudent thing to do to encumber most of our non-social security surplus to a tax cut when we knew that we had other issues that we were going to have to deal with.

We didn't think that would come true so quickly. Now we find that we have not only encumbered most, but more than all of the non-social security surpluses. And obviously, the whole world was changed on September 11th, but our problems began last March. And the tax cut is no longer a $1.3 trillion projection, but a $2 trillion projection. So I think as we talk about whether we're prepared to deal with the problems of a recession, we should also talk about whether we have the right budget in place. And I'm not certain that we do. In fact, I think we need to rethink the budget that was passed earlier this year.

On unemployment insurance, clearly, we have a problem. As was pointed out, 40 percent or 30 percent of the people who are unemployed get any unemployment benefits. That's not right. If we're talking about stimulating the economy, we know that in a recession, UI mitigates the impact of a recession. If we didn't have the UI system, the recessions would have been 15 percent deeper. We know that. So this is a good anti-recession remedy to strengthen our unemployment insurance system.

There's a bipartisan bill that I authored along with Congressman Houghton and Congressman English, and Congressman Rangel that deals with some of the problems. We say first that, why shouldn't part time people who have qualified for unemployment, who have the wage base, who have paid into the system, why shouldn't they qualify for unemployment benefits so we cover the part time worker? Most states don't cover part time workers today. Most states aren't using the most recent wage quarter to determine eligibility.

It might seem like it's a modest amount to qualify for unemployment insurance, but if you've just entered the workforce, if you've just come off the welfare system and you're just starting to work, you've been in the workforce for six months or nine months and now you're into a recession, there's a good chance that you're not going to qualify for unemployment benefits. If you earn eight dollars or lower an hour, you're 50 percent less likely to get unemployment insurance than someone who earns more than that. So the overall numbers might be 30 percent for the people who qualify for unemployment; it's much lower than 30 percent for low wage workers.

So we need to do a better job. Our legislation would cover these people. It would also extend the number of weeks by 13 weeks. It would also provide more money in their unemployment benefits, because that would stimulate the economy. That would, in fact, help us get out of the recession and do what Jim McCrery wants, more job opportunities, so that we can carry out a bipartisan commitment on welfare reform to find jobs for people, and not just any job, but good jobs, jobs that people can move up the economic ladder.

So our legislation, it's all temporary; it's one year, paid for out of the federal funds. And we have 30 some billion dollars in the federal unemployment trust fund, so we have the funds at the federal level to pay for the improvements to the unemployment insurance fund. Let me talk for a moment about TANF, if I might. And I know we're going to get into a big debate on TANF next year on the reauthorization. I agree with Jim McCrery. The basic structure of TANF is sound. It provides the wherewithal for people to find jobs, to work.

One of my major concerns is that I think the states have been moving in the right direction on TANF. I think they have. They've been using less and less of the federal funds for cash assistance, and more and more to deal with the real barriers to success in the employment field by providing money in daycare, by dealing with job training, by dealing with the issues so people can succeed in the workforce. Well, we don't know whether the cash assistance rolls are up. We don't know that because there's a six month lag in us getting good information on TANF on the welfare rolls themselves.

But if the welfare rolls are going up, I can tell you the dollars being spent for daycare and for job training will go down. Last year, the states spent $2 billion more than they got in their annual appropriation on TANF funds, the $16 and a half billion. They spent $18 and a half billion last year. They used some of their rainy day money. Some states have rainy day funds, some states don't; it's one of the problems that we have.

So I think the first issue is whether there's enough resources in the program. I mention that because President Bush recommended a modest increase in the Safe and Stable Families Law this year. We put it in our budget. The money won't be made available because we're rethinking our budget priorities in light of September 11th, in light of our surpluses being gone.

Will we start to reduce the resources that we make available for low-income programs, whether it's TANF or whether it's unemployment insurance? I think that's a real risk. When we should be helping the states more, we might be pulling back. There are many other issues in TANF we have to talk about—the contingency fund. This Congress let the contingency fund lapse. We don't have a contingency fund any longer. We should reauthorize it and change it.

The trigger mechanisms are too tough, the local match is unrealistic, and the overall cap makes no sense. We need to reform the contingency fund so that it can work in a recessionary period. So there are many issues that we should be talking about as we look at both TANF and unemployment insurance to deal with the impact of the recession. I would submit to you that we're not as prepared as we need to be for this recession. Some states are in better shape than other states. But as a nation, we need to take care of all the people in this country, and I think we can do a better job than we have.

MS. SAWHILL: Thank you very much. Those were terrific statements. I want to bring the audience into this in just a second here, including those who might be watching this by webcast. And for those of you who are watching and listening by webcast, if you would like to ask a question, let me remind you once more that you can send your question via email to question@Brookings.edu. And we'll then try to include as many questions as we can, both from those of you who are here today and also from those who are watching this by webcast.

Let me just join this issue that both of you have addressed so well, which is the whole issue of encouraging and supporting work. Congressman McCrery, I think you pointed out that if you make the unemployment insurance, or any benefit program, including welfare, overly generous, you may end up discouraging work. And we certainly are very much in the mode these days of trying to encourage people to become self sufficient, and you know, it's very much the theme in welfare reform, and I think it's been widely adopted, and that that's a very basic value in our society.

But I think that as Congressman Cardin has pointed out, as welfare caseloads have dropped by over 50 percent, that's freed up money that can be invested in childcare, and job training, and various other work support. That has been helpful in terms of encouraging the goal of putting more people into jobs. We've had this sort of stick on the time limits and the work requirements of welfare, but then we have these services that are helping people make that transition, and Congressman Cardin talked about that a lot.

Is it not the case that as states have to find money out of a fixed dollar block grant to pay for rising caseloads that they didn't have to pay for in the past, that some of those services are going to be de-funded, and does that worry you? And on the other side, for Congressman Cardin, I think some people would say that the reforms that you've proposed, including making unemployment insurance, not only extending the length of it, but expanding coverage to part time workers and making it more generous, might actually discourage people from getting back into the labor force quickly enough.

So if each of you would just say a little bit more about that issue, that would be good. And then I'm going to bring in the audience out here.

REP. McCRERY: Well, I do think that policymakers should try to balance the need to revise the safety net for the unemployed, something to tide them over between jobs that's adequate, and the reality that if you make that too generous, that you lower the incentive for people to actively engage in job finding. I do think that's a balance that we have to try to reach. And who's to say—I know some states, if you were to look at their benefits you would say "gosh that's too low." And maybe. And then, other states maybe have done a better job in providing that balance. But the states can decide that if it's done on a state by state basis. And I'm not sure that I want to get in the business of telling each state what's best for their particular circumstances.

With respect to the adequacy of funding and the ability of states to use that funding for childcare and other needs, that's part of the beauty of TANF. We purposely setup TANF to give states maximum flexibility to use that block grant funding to meet the needs in that particular state. It may be that a state needs to use almost all that money for benefits in a given time, and they can do that. Maybe, as in the case of almost every state—not every state—in the past four year period, they've been able to use that money for lots of things. I don't think it was accurate to say they've used it to build bridges and roads, because that's explicitly denied to the states. But they have been able to use that money for a variety of things related to welfare and job seeking.

And so, I think that's part of the strength of TANF, as opposed to the old AFDC. Look, Ben said he thinks we can do better. Maybe so. We're going to look at that next year. But my goodness, look at how much better we have done under TANF than we did under the old AFDC, which was supported by many Democrats. Ben was helpful to getting welfare reform passed, but many Democrats thought that the old system was a true safety net. The fact is, the people under the old AFDC system stayed, on average, on welfare for 13 years.

That wasn't working. This new system is working much better to move people from poverty into work, to improve their self esteem, to get their kids a role model that's positive, to give those kids a chance to educate themselves and be productive citizens. We are doing such a better job now than we were under the old system, that we ought to at least congratulate ourselves, I think, on the successes that we have. And then, yes, next year, look to see what we can tweak to improve and make it even better. But we are doing a far better job than we used to in this country with welfare and the safety net.

REP. CARDIN: Well, I agree with that. I think we are doing a much better job, and I agree with you that the structure of TANF is much better than the old system. So I think we can take pride in the restructuring of the welfare system. I might say I'm also pleased that during the same period we had a major expansion in our economy and that we also significantly improved benefits of work by the earned income tax credit. So I mean, it all contributed to a successful policy to reduce poverty in our country, and we should be proud about that.

But I think we should pause for a moment and be sobered by the fact that the decline in the caseload in welfare is much greater than the decline in poverty. So there's still a disconnect here. There's still too many people who aren't succeeding. And when you start looking at where does Congress want to encourage the states to put their resources—we want it to be flexible. I also agree with that. I want the states to be innovative.

I still have served more years in the state legislature than I have here in Congress, so I believe in the creativity of our states. I want them to have the flexibility, but we want them to also deal with a lot of these core problems of people not only leaving welfare, but finding employment and succeeding in employment. And I'm not sure we're there yet. In fact, I know we haven't done anywhere near as much as we need to.

We haven't spent enough money on daycare in this country. Does anyone here really believe that we as a nation are living up to the availability of affordable childcare for American families? We need to do a better job there. We need to do a better job in quality daycare. It struck home to me because I now have a granddaughter who's 20 months old, and we had to go through the problems of finding daycare. So it's an issue.

Now, you mentioned whether we go too far. Well, the reforms that are in the legislation that I have suggested came from the stakeholders. The stakeholders met on unemployment insurance. They had a commission, a taskforce to try to figure out how can they fix the unemployment system. And they came to an agreement. So if the business community and the people who represent the workers believe this makes some sense, then believe me, covering part time workers who are part time workers is much better than telling a part time worker to commit fraud and say that she's actually seeking fulltime employment when she's not. You know, let's make the system an honest system.

MS. SAWHILL: Okay, questions. Yes, way in the back. Please introduce yourselves before you speak.

Q: Yes, my name is Joel Wishengrad. I'm senior correspondent of World Media Reports, and I've also been working with a woman here in Washington who's been instrumental over decades working HUD projects and runs a group called the Employment Support Center. Her name is Ellie Wagner. One of the things you're talking about is, I guess, good case scenarios. But there are many people who are now and have been homeless; there are other people that are looking for that first job, even second and third jobs.

But the onus is more on the person; what about the employer? When there are more people in that mix, it's almost like, well, the employer sees, if it's a candy store, and is more likely to, perhaps, if the person isn't good enough, lay them off and find someone else instantaneously. Also, you have a mixed, what are called contract agencies or temp agencies, and they tend to garner maybe a third of a person's wages—and the person can then be laid off instantaneously if they're working.

And unfortunately, since September 11th, you also have PhDs, master's degree people, people that have been in upper and mid level management, they're losing work as well. And could you answer some of those questions? And fourthly, you have people —

MS. SAWHILL: Maybe we should give some other people a chance. Why don't we just take the ones you've put out so far? Yes, John.

Q: Just two thoughts to consider. One, instead of limiting it to Work First, how about Work First with a career ladder? And then, coupled with that, maybe doing away with the case reduction credit or adding to a case reduction credit an employment credit that gives states credit for people who remain in employment for 12 months?

REP. CARDIN: You're getting involved in some of the specific changes that we're going to look at next year in TANF reauthorization. We are looking at those specific changes. And in fairness to the current system, in regards to the credits, I mean, we are clearly looking at that, not only changing it from the point of view of the caseload reduction to employment, but also the quality of the employment, to try to have some sensitivity on the quality of employment.

But the current system does allow tremendous flexibility to the states to put people in different programs that meet the work requirements. So there is currently a great deal of flexibility in the states. We may want to take a look at what is needed for additional flexibility, but we think the states already have tremendous flexibility in dealing with the work needs of people who are on cash assistance.

REP. McCRERY: And let me just add, the states have an interest in getting people into good jobs. I mean, if you go to any state and listen to a radio for a while, you're going to hear some public official talk about job creation and economic development. Trust me, the states have a huge interest in creating good jobs and filling those jobs with folks from the welfare roles or from the unemployed roles. So I think the key is to give the states flexibility with their funding to see what's right in their states to fulfill that need.

MS. SAWHILL: Yes, way in the back.

Q: I'm Carrie O'Brien. I'm with the D.C. Employment Justice Center. We're a local worker advocacy center here in the district. And I haven't heard any talk about immigrants who, especially legal immigrants, who were cut out of welfare in 1996, and particularly here in the hospitality industry. It's a heavily immigrant industry, sometimes up to 60 percent. And what is going to happen to those unemployed immigrants when they're unemployment runs out and there is no federally funded safety net for them?

REP. CARDIN: Well, let me —

MS. SAWHILL: It's a huge issue to take on.

REP. CARDIN: Right. I disagreed with the TANF legislation as it's treated legal immigrants. I voted for the bill, but I disagreed with that section. I have spoken very strongly against what we did then and have supported every effort we've had to undo what we did in 1996 with legal immigrants. I must tell you that, as the ranking Democrat on the Human Resources Subcommittee, I am looking at legislation that will provide equal benefits for legal immigrants and citizens under our programs.

The difficulty I'm having is the fact of what it scored at. It's a lot of money. It's having a great impact, but it's a lot of money. And I'm fighting for resources for these programs, for childcare, for TANF, and for undoing some of the harm that we caused legal immigrants. But I think it's going to become more of a dollar issue than a philosophical issue as we try to put together next year's budget.

REP. McCRERY: I agree with Ben. We have to prioritize. And when you look at the universe of money that we're going to make available for welfare in this country, legal immigrants are right at the margin. It's a legitimate question, we ought to look at it, but they are covered by the unemployment insurance system. So for now, that's got to be the safety net for legal immigrants.

MS. SAWHILL: Okay. Unfortunately, we're out of time for this session. I want to thank both members for joining us today. It was very good of you, and we look forward to working with you as these policy discussions and legislative debates move forward. Thank you so much.

Let me ask the last panel to join me up here. Okay, thank you for bearing with us here. One of the panelists has some slides, and we're going to see if it's possible to rollout the projector again so we can use them in just a minute. Let me start out by thanking all of you for taking the time to be here today. And I'm going to introduce you just briefly, and then I'm going to ask that all of you take less than five minutes—and I really mean less than five minutes. I'm going to interrupt you if you take more than that. And Carly is going to hold up a sign if there's a problem as well, so you'll know when you're running out of time to make some opening remarks, because we do really want to have some debate and discussion here.

On the far right over here is Rich Hobbie. We're so glad to have Rich here today. He is the unemployment insurance director of the National Association of State Workforce Agencies. And he had to catch a plane back from New Orleans and almost didn't make it, which is one reason why I'm very pleased to see him. Next to him is Bob Gross, who heads the Department of Workforce Services in Utah. And speaking with Bob on the phone yesterday, he pointed out to me that he also has some great familiarity with the TANF system in that state as well.

Next to Bob is Charity Wilson, who is here from the AFLCIO to represent labor's point of view. And on my far left over here, your far right, is Eric Oxfeld, who is president of the UWC, a group that represents the business community on issues of unemployment insurance and workmen's comp. And then, last but not least is Ron Wilus, who is here from the Employment Training Administration in the Department of Labor. So with that, Rich, why don't we begin with you if you're ready with your slides.

MR. RICH HOBBIE: I can do that, but we don't have the transparencies. They seem to have gotten lost somewhere in the process. So I'll talk without them; I don't think it's a problem. Many of you might have been able to pick up copies of the transparencies out front when you came in. I want to make a couple points which follow on from what Harry Holzer said at the beginning.

There has been a secular decline in the percent of unemployed persons receiving unemployment insurance since the 1950s. In the 1950s, about half of all unemployed persons received unemployment insurance. And as Harry mentioned, in good times now, that's down to about 30 percent, or about one third, as we often say. That percentage rises during recessions, and at the end of the second quarter of this year, we were back up to about 44 percent.

If you want to do something about that, move the percentage back up to about 50 percent, you can look at the proposals of Mr. Cardin providing benefits to part time workers seeking part time work in most states. These individuals cannot get unemployment insurance benefits. And also including more recent wages earned, particularly by low wage workers. If you do that, you probably can add five or six percentage points and get back up to the 50 percent level. And those are certainly in play right now, because Mr. Cardin and Senator Baucus have proposed those in the economic stimulus package as temporary measures.

Secondly, the Democrats have also proposed a temporary federal supplement in the weekly benefit amount for state unemployment insurance benefits. Recently, I took a look at a chart on the ratio of average weekly benefits to the average weekly wage of individuals claiming benefits in this country, and was surprised to see that there has actually been a long term rise since 1988 in this ratio. Now, that surprised me. I'm not sure why that is, except maybe it has something to do with the composition of unemployed persons claiming benefits.

The benefit formulas for claimants in the states have been pretty constant throughout history. We aim at replacing about half of wages, but these benefit formulas are progressive. In other words, low wage workers tend to get higher replacement rates, up to two thirds of their lost weekly wages. So this system is progressive in the states, and many low wage workers, if they are eligible, have higher replacement rates than higher wage workers.

Also, the maximum weekly benefit amount is indexed in 34 states. It rises with the state average weekly wage and keeps up with economic growth and inflation. But in some states, it is not, and in a few of those states such as California and Virginia, they have recently raised their maximum weekly benefit amounts to try to deal with that problem.

We know we're in a recession. Initial claims are climbing dramatically. At the end of the week of November 17th, they were up to 488,000, which is near the peak prior to the enactment of the last emergency unemployment compensation program back in the early 1990s. So I think the time is right for an extension of benefits. In fact, our timing this time probably, if it's enacted in this month, will be better than it ever has in the post war period.

We have a number of proposals in play in the economic stimulus package right now, which I believe will help. I believe there will be a 13 week extension of benefits enacted that will be available in all states. The administration tells us they support that. It won't be triggered and activated just in states that have recently experienced high unemployment, and I think a consensus is growing on that.

Secondly, the so-called $9 billion Reed Act distribution to state accounts in the unemployment trust fund is still in play. Mr. Thomas reiterated his support for that yesterday. States use this money to fund existing state benefits. There are a number of states who were at risk of going insolvent and having to borrow from the federal government, so it will help their solvency. They also say they will use these funds to invest in more employment services to help unemployed workers find jobs sooner than they might otherwise. And it will also help some states avoid borrowing in the next year or two, and avoid benefit cuts and tax increases as a result of the need to borrow from the federal government, which certainly is counter-cyclical and stimulated.

As far as the benefit provisions, Mr. Cardin and Senator Baucus have brought those into play in the stimulus discussions. Right now, the employer community does not support those, and I think the Republicans are still opposed. We'll see whether those turnout in this stimulus package or not as temporary measures. Our association supports looking at those measures next year in the context of debate on permanent unemployment insurance reform, and we look forward to that debate. Thank you.

MS. SAWHILL: Thank you. Wonderful. Good role model for everybody else. Bob, could we move to you?

MR. ROBERT GROSS: Yes. There's not a lot of pressure, as you can see, on us keeping our time short. I'm pleased to be here and, I suspect, represent states or state administrators, or secretaries of labor, or commissioners, or the like. And let me offer a couple of perspectives. I think Rich has done a tremendous job in outlining at least the current legislative or congressional proposals.

The group that you see, my colleagues and me, and others, constituted the workgroup that I believe Mr. Cardin referred to, which worked on unemployment insurance reform over the course of about two years. Those efforts were somewhat suspended about a year ago. I would just hasten to add that the unemployment insurance system, it is important to understand the differences between the UI system and what is traditionally referred to as the welfare system.

Unemployment compensation is, in fact, insurance. It is insurance that is time limited at a limited duration. It is not intended to be a social safety net for all individuals, but to meet a targeted audience, as has already been explained—those individuals who are out of work through no fault of their own, and that primarily covers laid off workers or workers who have been displaced who have a fairly recent attachment to the labor force.

Let me also indicate another perspective, as Belle indicated. I am an administrator in a state—I'd like to say a legion of states, but one of several states whose legislature has taken the step to change at least a portion of its social services approach to, instead of the traditional social services implementation approach, as has been followed traditionally, our approach in Utah, and a similar approach in Wisconsin, Ohio, now Wyoming, soon to be Arizona, and a handful of other states, is to combine a number of different programs into an employment based agency.

And so, our Department of Workforce Services does have responsibility in Utah for the unemployment insurance system. We also have direct responsibility for the administration of TANF, childcare, and the food stamp programs. We don't have Medicaid, although those customers who are eligible for TANF and qualify for Medicaid, at least their eligibility portion, are administered by our agency.

I would hasten to add that in terms of the reform efforts, while the unemployment insurance system has worked very well for 70 years, it is in need of serious reform. And all too often, what has happened in the past is we enter into a period like we're in now where the economy softens, we enter into a recessionary trend, Congress is reactive, as it will be this time, and pass a stimulus package with some emergency grant monies or similar kinds of funding to states to deal with the immediacy of benefit provisions.

What has not happened over the past several decades is adequate administrative funding coming back to states so that we can, one, administer successfully the unemployment insurance system. But another big component that we have found in a state like ours is the lack of funding or adequate funding for the employment service. Our department, and many like our departments, working with TANF clients or other social service or the traditional welfare client or customer—and as we move toward employment, we are in desperate need of adequate funding in our employment services.

The funding for the employment services primarily comes from the FUTA tax that was referred to earlier. And again, to correct something that may have left you with a false impression: while there is probably plenty of money available for the employment service and to fund adequately unemployment insurance administration, more than 50 cents on every dollar of that money paid by employers to Washington stays in Washington. And that money has been traditionally used in the past 20 to 30 years, if there is any spending, for things like highways, or roads, or other kinds of things.

I can assure you that it probably goes on at the congressional level and not at the state level, because those monies, as scarcely as they come back to us, are, in fact, fairly strictly used for unemployment insurance and employment services. However, there's not enough funding on the table currently.

MS. SAWHILL: Thank you very much. Charity.

MS. CHARITY WILSON: Okay, I'm going to try to be the one who doesn't blow the time limit here. I think that it's pretty clear to all of us that the workers that have been hit the hardest, who've taken the brunt of the recession have been low wage workers, particularly in the service industry. Since September 11th alone, there have been over 750,000 layoffs, and low wage workers in the retail services and transportation industries have borne a tremendous brunt of that.

Unfortunately, these same workers tend to have the characteristics that make it less likely for them to receive UI from their states, and that also goes for those who are low wage workers who have never received a dime from TANF, and those who are moving from welfare to work. For one thing, studies have shown that between 25 to 40 percent of all people leaving TANF are part time workers, and they tend to make between six to eight dollars. Now, these are not national averages, because states report data differently. It's the states that have reported that they have looked at this data.

As a matter of fact, in New York City, where I believe the five year time limit kicked in today or yesterday, one half of those who will loose their TANF grants are working, but make so little money that they still qualify for cash assistance. So therefore, when you carry that over to statements such as several speakers have made, that the replacement rate for low wage workers in actually increasing, you have to remember how little money they make in the first place.

As a matter of fact, two thirds of people on UI receive less than $250 per week; one third receives less than $170 per week. And an average single working parent with two children will fall about $1,300 a month short each month on UI to meet their most basic of needs. So even though you're talking about perhaps an increased recipiency rate, which we're not sure, at the AFL and other worker advocacates, we would put quite as high as 33 percent, because of the numbers who are part time, and because of the more recent work history and the low earnings.

That still is leaving an awful lot of people with no choice but to go back on TANF or to do what so many people on TANF have done, and that's just simply fall off every roll whatsoever; we don't know what happens to them. And we think that it is essential to reform the base period to count a worker's most recent wages. We are not saying that there should not be a proof of work attachment; we're just saying that there's no need to disregard up to six months of a person's most recent work experience to do so.

This actually means, when you look at a base period, that is, the first four of the past five quarters that have been reported, you are discounting the fact that people who have recently started off—on a probationary period for a six month period, when they get a raise, when they get more hours. In other words, their earnings are higher those last five, six months that are not counted. So we're not saying that people shouldn't have an attachment to work, but just saying count all of their wages to do so.

Part time workers—that is ignoring the nature of work. Many jobs are designed to be part time. Low wage workers, the work that they qualify is also part time. And it's our parents, women who are taking care of not only dependent children, but oftentimes, dependent adults. And finally, we'd also like to say that we agree that the administrative financing has to be addressed. We have many workers who, for the first time, are entering the UI system. They're not familiar with the phone system. And as many of you know, they have moved to such things as internet applications, or phone applications, where a person never speaks with a live ES worker until way down the road.

That's very daunting for someone who is not used to using those systems. When you have trained and experienced ES staff, they should be the ones helping those people, not only to get those benefits, but also guiding them to training programs and placement programs, and to better jobs.

MS. SAWHILL: Terrific. Thank you very much. Now we'll hear the business perspective on these issues from Eric Oxfeld.

MR. ERIC OXFELD: Thank you very much. Again, I applaud Brookings for brining everyone together and having this opportunity for both business and labor, who are the primary stakeholders in the system, as well as the administrators who run it, to address your group. Employers support the UI program. Business sympathizes with the problems of jobless workers, but understandably, employers also have to be concerned about the costs of the Unemployment Insurance Program.

Employers, if you haven't noticed, are having trouble meeting their payrolls. That's the reason why the unemployment rolls are growing. Employers pay for the UI program through their state and federal taxes. Last year, the UI system cost employers about $30 billion, even though we had practically no unemployment. That number is going to climb dramatically next year and even more so in 2003, as the effect of the increased claims load hits home and is reflected in increased tax rates on business.

These problems with employment have been particularly severe, as Charity pointed out, in the service industries, retail, restaurants, hotels; transportation has been particularly hard hit by the events of September 11th. And so, these are the employers who are unfortunately needing to reduce the size of their staff, and who are having to eliminate jobs, and they are the ones who can least afford an increased tax burden and an expanded Unemployment Insurance Program.

By the way, I do have a written statement, and so I'm only going to try to hit a couple points in the few minutes that we have to speak directly. There's a lot we would like to say. I have to strongly agree with Bob to remind you that UI is an insurance program for workers. Workers become insured by having sufficient earnings, and those earnings are determined by the states. It is not a welfare program. When Congress enacted welfare reform, it did not intend to shift costs from the welfare system to employers by saying, well, we have to change the UI program because somehow, we're unhappy with the experience of people in the welfare system.

Employers have a very different view about much of what Mr. Cardin talked about in terms of expansions. Part time workers I want to comment on particularly. First of all, part time workers are covered by the UI program. You don't know whether or not they'll be eligible if they have no earnings until after they lose their job under conditions that would qualify. And it's only at that point that the question becomes, is an individual available for full time work?

And the majority of states, and from the history of the UI program, this has been a program for workers who do not limit their availability for work. Employers don't believe that it's appropriate, and I don't believe our society believes it's appropriate to compensate people, to give them transfer payments when there is work available, if people are limiting their own availability for work. That is the reason why states require workers, even part time workers, to be available for full time work if they want to collect UI benefits.

On the base period issue, there are similar concerns. Again, it's both an administrative issue as well as an attachment issue. In many states, you can work as little as eight weeks in order to qualify for benefits. It is very burdensome on the states and on employers to have to go to the most recent wages in order to determine a worker's eligibility or to calculate their benefit amount. And on account of that, the states have chosen to use the formula which does not rely on the most recent earning.

And often, states have said, in order to accommodate low wage workers, we will have a relatively low earnings threshold. In California, for many workers, you have as little as eight weeks of work in order to qualify for benefits during the standard base period. And changing that will, especially at the federal level, upset the balance that states have struck in determining the interests of employers and workers in their jurisdiction.

States are free, of course, to expand their laws for part time workers to change the base period, change the weekly benefit amount. And many of them, you know, the minority of states have done so for part time workers, and some states have alternative base periods, but that is a decision that is appropriately made at the state level.

There are some positive things the states should do. We agree strongly with administrative financing reform. I could spend the rest of the day explaining why that's beneficial for everyone. Bob and Rich have already talked about, eloquently, why that's the case. Providing more resources to pay for the basic UI system by allowing the excess FUTA—what Harry Holzer, in his excellent summary, didn't mention to you is that the federal tax is much higher than it needs to be.

Even though the ceilings on that tax were doubled in 1997, we are collecting much more in FUTA tax than is conceivably going to be needed. Under current law, that money is supposed to be returned to the states so that it can be used to pay for basic UI benefits, to expand resources for states to administer the programs. And we are very supportive of the $9 billion in the House stimulus package because it provides that money to the states. And yes, the states will be able to use that money to expand eligibility if they choose, but it ought to be a state choice.

We need to eliminate this two tenths surtax on employers under the federal employment tax. That will help stimulate the economy by stimulating jobs, but it's not part of the current debate. The best way that employers believe we can help raise the actual replacement rate and money in workers' pockets who are unemployed, is to repeal the income tax on UI benefits. And we were very pleased to see that Mr. Thomas, in his latest proposal as part of the negotiations over the stimulus package, has recommended that this very severe and onerous tax on workers who have to give up part of their unemployment benefits, as little as Charity accurately describes them, this is a very good way for the federal government to eliminate an iniquity and hardship on workers. So thank you for giving employers a chance to participate in this dialogue.

MS. SAWHILL: Okay, Ron Wilus.

MR. RON WILUS: And I'd like to thank you for inviting the Labor Department to be on this panel. Well clearly, there are important questions about the extent to which the current safety net programs, UI and TANF, as well as other programs such as Medicaid and food stamps, are adequate to meet the needs of low income working families. Following the 1996 welfare reform, the common assumption has been that in a recession, former welfare recipients who have worked might not be eligible for additional TANF assistance, federal time limits, thus placing the entire burden for additional cash assistance on the UI program.

However, many of the past studies of these two programs to determine how these would mesh during a recession are based on outdated assumptions and data. They are also sometimes based on incomplete understanding and extreme assumptions about the degree to which the TANF recipients are likely to lose eligibility or additional cash assistance. More recent studies that address the issue, whether former TANF recipients might qualify for UI, such as the one Harry Holzer referred to earlier, conclude that a higher fraction of welfare recipients who have worked wouldn't qualify for UI in a recession.

Work experience among current and former TANF recipients is increasing. Moreover, minimum earnings thresholds for UI eligibility has remained constant in many states, although not all, as we've heard from Rich. Also, a higher fraction of those who lose jobs during a recession are laid off. Fewer quite voluntarily, which is generally a disqualifying factor for UI.

The substantial number of TANF recipients who leave welfare for work can qualify for additional welfare related cash assistance, if they lose jobs from both state and federal programs. Those who do not meet the UI non-monetary requirements for a qualifying separation from work, or being able and available for fulltime work, are likely to be eligible for TANF. This is because TANF does not consider, as UI does, reasons for job loss. Also, its work participation requirements do not include availability for fulltime work, as some states or the UI program.

Studies that have tracked welfare leavers over the past few years show that a large number of welfare recipients cycled in and out of welfare and work and do not qualify for additional cash assistance. Because 20 percent of the state TANF caseload can be exempted from the federal time limits, states have substantial flexibility to retain families on cash assistance. Some large states—for example, Michigan—have made it policy to use state funds to keep any family on cash assistance as long as they comply with program requirements, particularly concerning participation in work activities, which include such things as active job search.

So even after welfare reform, UI and TANF complement each other in sources of income support, with UI being designed for temporary income replacement for the most job attached workers, and TANF being more available for those less job attached. As you've already heard, TANF is scheduled for reauthorization next year. It is our understanding, if the recession continues to unfold, both UI and TANF policymakers need to be agile in continuing to assess experience under the current program and develop debate options for better linkages between the two programs.

MS. SAWHILL: Thank you. You all were very good about staying within your five limit time limits. Let's open this up to the audience as well as to members of the panel who might like to respond or ask questions of each other. Let me be the skunk at the garden party just to get this thing livened up a little bit here. A lot of you seem to be very much in favor of the Reed Act distribution. I mean, taking the excess money that's in the FUTA trust fund and returning it to the states to be used for a variety of things.

Historically, there has always been a debate about how effective the employment service, or whatever we call it nowadays, is. Would some of you who are very knowledgeable about this area care to say a little more about all of that? Rich, for example. (Laughter.)

MR. HOBBIE: Well, in looking at the research evidence on providing job search assistance, particularly intensive job search assistance, to unemployment insurance claimants, it has been shown in a number of studies, beginning with the classic study in New Jersey, that we can reduce the time spent on unemployment insurance by providing claimants with intensive job search assistance, and they go back to work sooner than they might otherwise without that assistance, and they find jobs comparable to the ones that they would find on their own anyway.

This saves the unemployment trust fund some money and puts people back to work a little bit sooner than they would otherwise. We believe that if we provided additional funds to the employment service to provide these added job search assistance services to UI claimants that we would reach that benefit that is demonstrated in the studies.

MS. SAWHILL: How many states are actually imitating what New Jersey tried to do?

MR. HOBBIE: Well, we passed a federal law in the early 1990s to require states to implement something called profiling, which wasn't a bad word then, but that's what we still call it in the Unemployment Insurance Program. And what that basically does is try to identify individual claimants, at the very beginning of their claim, who are highly probable of exhausting their unemployment insurance benefits. These individuals, then, are supposed to receive intensive job search assistance, to the extent that it's available in a state.

The problem has been that not much money is available for these intensive services, so we're not reaping the benefits that we could if we had more resources. And that's one primary reason why we strongly support the Reed Act distributions. And we recently did a survey of states; 38 states responded. And one of their main answers was they would take some of this money and spend it on employment services.

States believe in this. They now spend $600 million a year in their own state funds on employment services and administrating the Unemployment Insurance Program. The original design of the system assumed that the federal government would fund these services and fund the Unemployment Insurance Administration. But as Mr. McCrery mentioned earlier, the federal government's been collecting excess federal unemployment taxes, primarily to make, then, the federal budget deficit look small—very recently, to make the surplus look a little bit bigger, and now, maybe we're going to make it the deficit look smaller again.

We would like to see some of those allowed to go back to the states through the Reed Act mechanism. And also, our association strongly supports, as employers do, repeal of the temporary FUTA surtax of two tenths of one percent, which we believe is unnecessary.

MS. SAWHILL: I wanted to ask Bob to say just a little more about the issue of coordination. If the welfare system is setting up job search assistance programs in ten states that are separate from what the employment service is doing—I gather it's fairly well coordinated in Utah—I mean, how does it work? Is there the same system for everyone, or is there a separate system?

MR. GROSS: In Utah, it is coordinated. Essentially, the activities under the Workforce Investment Act, under TANF and the other assistance programs, and the traditional employment service programs fall within one agency. And so, by state legislation, it is well coordinated. However, I had the opportunity to serve as the president of our national association of state workforce agencies, and I can suggest to you that it is not that well coordinated in all states.

Under the Workforce Investment Act, ostensibly, states leading workforce service agencies, which in about 36 states constitute the agencies that administer both the unemployment insurance and employment service, as well as the Workforce Investment Act, are required to partner with their colleagues throughout their local communities and states, including partners from education, partners from social services, as well as partners from the private sector.

But if you go back—and I'll just speak now as an administrator. We have come a remarkable long way under TANF, I would submit to you, in the last four to five years. I came from the private sector. When my governor asked me to take on this position, he asked me, based on experiences I had had with mergers and acquisitions, how long I projected it would take us to assimilate the cultures of five different agencies. I was very naïve.

I told him the corporate world, three to four years. Well, in the social services world, which I quickly discovered, I'm not sure what the appropriate time frame is.

MS. SAWHILL: Infinity.

MR. GROSS: But I would submit to you that the past four to five years, I believe states have done a remarkable job in building infrastructures that, as has been suggested by several of our panelists, we still have a long way to go.

MS. SAWHILL: Okay, yes, Charity.

MS. WILSON: In regards to the Reed Act distribution, I wanted to add that the AFL-CIO and worker advocates also favor the Reed Act distribution going back to the states. However, I think that you would differ, perhaps, on the use of it. We intensely believe that there should be adequate funding for ES services. But we also think that some of that money should be used to expand eligibility so that those people are able to access those services in the first place.

And I believe on the national website last week or the week before last, the survey that Rich was referring to, state administrators, the majority of them said that they did not intend to use it to expand eligibility in their states. So we believe that it is very important to balance it too, that you've got to make more people eligible for these services and that those services have got to be top notch.

MS. SAWHILL: I mean, it's interesting, almost no one has argued in favor of a stronger federal role here. And the argument would be that if you return money and responsibility to the states, that the states are going to compete with each other to attract business. And that's going to require, as you pointed out so well, keeping payroll taxes low and not funding a very generous and, perhaps, a very parsimonious unemployment insurance system. So is there anyone here who wants to speak to this state-federal issue.

MR. GROSS: First, I'd like to —

MS. SAWHILL: What's the response to my putting out the federal argument here?

MR: OXFELD: I'd like to comment on the employment service issue, because it would be an understatement to say that the employment service, over its history, has lived up to the expectations of what it was supposed to do. On the other hand, it's made a lot of progress; and clearly, not having the resources to do what's needed is a big hindrance. The ES agencies are the cornerstone of the Workforce Investment Act, and if we're going to have the Workforce Investment Act succeed in its goal, it's critical that we have adequate funding for the employment service component so they don't recreate a whole new layer of duplicative services to provide placement and employment services for people who are coming out of the training and employment programs under WIA.

But most particularly, during my history—I worked with the U.S. chamber at one time. Throughout my career, employers have complained to me that UI claims were the people who were last to get served by the employment service. And so, the focus of the McCrery bill and the proposal that we've been working with NASWA on to reform administrative financing provide more intensive re-employment services for UI claimants, as well as assistance for everyone else. That's very important.

On the issue of federalism, there's clearly been, since the inception of the UI program, a vigorous debate over what the appropriate federal role is. And I doubt it if we'll decisively answer those questions today. Business and labor have strongly different opinions on many aspects of that from the history of the program. It is important to understand that the federal government isn't exactly holding up its end of the bargain to the satisfaction of many of us in the system, particularly in the business community.

The federal government is responsible for over taxing employers and under funding the state agencies that administer the program. It's not exactly a great track record, and it does not give us any feeling of encouragement to think that the federal government is better positioned to deal with the much more complicated problems of how much the wage replacement should be, how much the eligibility criteria should be. Those are determinations that really need to be made at the state and local level, and the judgment of employers, in order to have a sound system.

Massachusetts has a very high weekly benefit compared to most other states, and I'm sure Charity could quickly cite states that are at the other end of the scale. Mr. Cardin's proposal would give everybody the same $65 a week on top of whatever their current UI benefit is, regardless of what state they're in. It doesn't make a lot of sense to us to do that federally.

MS. SAWHILL: I just want to raise one more question, and then I'm going to bring the audience and webcasters in. And that is really to go back to the relationship between the unemployment insurance system and the TANF contingency fund. Now, a number of you up here are probably more expert on UI than on TANF, but some of you know a lot about both.

The question that I have is, if the contingency fund is not reinstated and reformed in the way that Mr. Cardin talked about wanting to do, if that doesn't fly for all of the reasons that I think Congressman McCrery was talking about—you know, shortage of funds, and it's a block grant, and we expect states to live within it—if that turns out to be the case, then it seems to me, there's going to be a lot of pressure on the unemployment insurance system to take up the slack, so to speak. Because people aren't going to like the idea of a lot of people being out there, having held jobs and having no safety net.

Is the unemployment insurance community, the advocates in this world, the Labor Department, et cetera, focusing on this relationship? Do you all have positions on the TANF contingency fund for this sort of reason, or is this something that is just going on totally separate? Anybody want to comment on that?

MR. WILUS: We're still examining the issue, but we haven't come up with a position.

MS. SAWHILL: Well, let me suggest it might be something that ought to be examined. Okay.

MR: GROSS: If I might just take a stab at that, I was looking at Ron because I look to him to give what response the DOL may give. We do think Congress needs to look at something. Now, when I say that, what has changed, obviously, is the economy in the past four to five years. I mean, one of the benefits we've had in terms of the installation, if you will, of the TANF induced system, or the system since '96, is that we've been in a relatively healthy economy. That situation has drastically changed.

What we're now talking about is likely a period of limited duration, which most economists project we're going to be in in terms of the current recession, but that is an unknown, and how to deal with that particular population who may be caught in that lag of insufficient work attachment, or other kinds of concerns, and don't qualify perhaps for unemployment insurance. What will be done if some of that same population has expended all of their time limit availability on their TANF program?

We believe the contingency fund ought to be reexamined. And I'm speaking on behalf of just my state. But we also think a greater emphasis needs to be placed on the coordination and the fitting together, if you will, of the Workforce Investment Act, the unemployment compensation system, as well as the social safety net offered by the TANF program, food stamps, childcare, Medicaid, and so on.

And I'm not here to pin that blame back on, necessarily, or bash our federal partners, either in the Congress or in the agencies. But simply stated, states have the perspective that we have been as creative as we can possibly be in melding very diverse and complex funding streams into seamless, and unified, and integrated services. The difficulties that we have in terms of doing that, most often, are as a result of the imposition of federal law or regulation, which don't allow or disallow certain kinds of practices. So there is room, we believe, for everyone to look at that.

MR. HOBBIE: I just wanted to ask you, you didn't get an answer to your question about federalism. I was willing to offer an answer, if you want to know.

MS. SAWHILL: Please.

MR. HOBBIE: Okay, good. Over the years when we've had recessions, certain states have been more solvent than other states. And the states that aren't very solvent, often, they'll insolvent in the middle of a recession and they have to borrow from the federal government merely to cover the cost of their regular state benefits. That creates a political and economic crisis in the states.

They deal with that by looking at their program and trying to correct the financial imbalance in their program. And usually, business and labor get together in the state capitol and try to workout a compromise to deal with this problem. When they do that, they usually cut benefits and increase taxes, because that's a compromise. The net result of that is a less generous Unemployment Insurance Program.

When this happens in one recession after another, you find the Unemployment Insurance Program shrinking. It has shrunk over the last 50 years; it may shrink again in some of these states that are probably going to have to borrow in the next six months or so to pay their regular state benefits. I think that's a serious concern and tends to degrade the Unemployment Insurance Program. And maybe it raises the question of whether the federal government should pay closer attention to solvency than it has.

Although I will tell you, I've looked at the issue of unemployment insurance solvency for many years, and it's easy to talk about solvency; it's very hard to do something about it.

MS. SAWHILL: Okay, thank you. All right, let's bring in some people from the audience. And if you're watching this on the web, remember that you can email a question to questions@Brookings.edu. Yes.

Q: Hi, I'm Roxie Nicholson from the Labor Department. I've known many of you up there for a long time. The Labor Department, I just wanted to say, I think we are paying attention to it, judging from the numbers of papers and things I've had to write in the last few weeks—there were various people to speak on this. But one thing I just want to point out in regards to the TANF unemployment insurance coordination question—when Harry was at the Labor Department, he did work on commissioning a paper, which we called the "Employment Safety Net for Families in a Declining Economy: Policy Issues and Options," and we got the results of that study.

And what that paper said—it hasn't been released yet, nor do I know if it's going to be, but there's a lot of good information in it—one of the things that it did say was, about 400,000 or 500,000 people would not, in a moderate recession—would lose their jobs and would not qualify for UI or TANF. And about 10 percent of those would be TANF recipients who had lost their jobs and would not qualify for UI or for TANF. So, you know, that's not huge in comparison to the number of people who lose their jobs in the United States, say, 500,000 people in a moderate recession. And I think that sort of matches what the AFL-CIO would say in terms of the job loss recently.

A lot of those people would be eligible for UI and some would be eligible for TANF, but there would be people who wouldn't. And the current unemployment insurance legislation has no statutory authority for any special benefits provisions for welfare recipients or low wage workers who don't qualify. And so, I just wanted to know if any of you would support, or are interested in, or think there's any possibility of legislating some sort of special benefits provision extension to unemployment insurance, which would perhaps extend the unemployment insurance system's benefits to low wage workers and welfare recipients who have lost their jobs, either in a time of recession or other times? That's my question.

MS. SAWHILL: It's a good question. I know the National Governors' Association proposed something along the lines of what you're suggesting. Before anyone answers, let's get some more questions and comments, if there are some out there. Any others? Yes, way in the back there.

Q: Cynthia Harrison, George Washington University. This bears also on the connection between the federal programs TANF and UI. Mr. Wilus referred to the 20 percent permission for families who have exceeded the five year limit. But that is a current caseload. And since the current caseload reflects, in many respects, the people who haven't been able to get off TANF because of severe disabilities, educational or otherwise, if the administration would consider supporting an increase in the 20 percent exemption from the limit for federal benefits, permitting, in the face of a recession, more TANF recipients to continue to receive federal funding.

MS. SAWHILL: Right, that's another proposal to make the system a little more flexible in a recession. Other comments, questions? Okay, let's see if anybody wants to speak to the ones that have been raised. Charity.

MS. WILSON: Yes, I would. I think that the comments that are raised by the DOL representative really argue for a stronger federal role, especially in the expansion of eligibility. Because many of those people who you're speaking about who would fall through and they wouldn't be eligible for UI, and for whatever reason, they're not eligible for that TANF cash grant anymore, if there were more realistic eligibility qualifications in their states, many of those folks, in fact, would qualify.

Right now, there is what has been called a patchwork quilt of eligibility across the country, where workers in exactly the same situation, their eligibility varies wildly, depending on which state you're in. And when you are talking about an insurance program, not a safety net program, because these people were working, so this is the insurance that was taken out of their paycheck. Employers merely write the check. It doesn't come out of their bank account, it comes out of wages that are not paid to workers or workers who are not hired.

So it's already been paid for them. And so, one of the ways to address the situation that you're speaking of is for there to be mandatory coverage of these folks who are working hard and just working in jobs that make them a little less—well, it's a little bit, but it goes a long way—less likely to qualify, but they're working. So we think that is a stronger argument for a stronger federal role, especially for eligibility.

MS. SAWHILL: Rich.

MR. HOBBIE: Last year, our association agreed to an unemployment insurance and employment service reform package that included provisions to provide unemployment insurance benefits in all states for part time workers who were seeking part time work while they're unemployed. And the association also agreed with a provision that would include more recent wages in the base period calculations so that more low wage workers would become eligible for benefits.

That agreement was conditional on the association's view that business and labor must agree before we would support that. We did reach an agreement in our taskforce last year, and business and labor did support the entire package with those two provisions in it. However, that agreement kind of fell apart last fall, when it became public and we began to discuss it in Congress. I'm hoping that we can revisit these issues again early next year. I understand the administration is open to unemployment insurance reform proposals and debating these issues, among others that we discussed last year. And that's well beyond the economic stimulus package.

So if these provisions that Mr. Cardin and Senator Baucus propose don't wind up in an economic stimulus package, I expect we'll be talking about them again early next year. And there may even be something in the president's budget which mentions these ideas.

MS. SAWHILL: I think that's the final question I was going to pose, is what is likely to happen this year, and what is likely to get held over to next year, and what are the prospects for legislation, either with respect to TANF contingency and other recession related provisions, or with respect to UI? You want to say a little more about that, Eric?

MR. OXFELD: Well, I wanted to comment on the point about the proposals for expansions through federal law. There is no business support for such expansions. There was some limited initial business support as part of a compromise, which we were a party to ourselves. But it foundered over the issue of part time workers, in particular. And this year, the business community is unanimous in not wanting to see the federal government intrude into these areas that have been traditionally left to the states. I mean, businesses feel strongly that these are determinations that are best made at the state level and not federal.

MS. SAWHILL: It sounds like we've wrapped it up. Thank you all very, very much for being here.

[END OF EVENT.]